PROOF OF VALUE IN EMINENT DOMAIN LEASEHOLD INTERESTS

THE VALUATION OF LEASEHOLD INTERESTS IS THE ESTIMATION OF VALUE OF A PARTIAL INTEREST IN REAL ESTATE. LEASEHOLD INTERESTS ARE OF THE FOLLOWING TYPES: (1) PHYSICAL IMPROVEMENTS PLACED BY THE LESSEE, (2) BONUS VALUE CREATED BECAUSE THE PRESENT RENT VALUE EXCEEDS THE RENT ESTABLISHED BY THE LEASE RENT, AND (3) A COMBINATION OF THE TWO. THE MEASUREMENT OF VALUE IS THE PRESENT VALUE OF THE IMPROVEMENTS. EXISTENCE OF BONUS VALUE IN A LEASE IS THE MORE COMMON TYPE OF LEASEHOLD INTEREST DEVELOPED WHEN: (1) THE PROPERTY IS LEASED TO A PARTY IN INTEREST, (2) TAX CONSIDERATION MAY PROMOTE REDUCED RENTAL LEVEL, (3) THE LEASE IS CREATED AS PART OF A SALE-LEASEBACK TRANSACTION, (4) KNOWLEDGEABLE TENANT MAY HAVE SECURED A RENTAL BELOW THE MARKET, (5) RENT ESTABLISHED MAY BE INCIDENTAL TO TRANSFER OF BUSINESS, INVENTORY, GOOD WILL OR FRANCHISE, (6) RENTAL CONCESSION IS GIVEN TO GET BASE TENANT, (7) RENTAL CONCESSION IS GIVEN TO KEEP OUT COMPETITORS, AND (8) AN INCREASE IN PRESENT RENTAL LEVELS CREATES A BONUS VALUE WHERE THE PROPERTY WAS LEASED SOME TIME AGO AT THE MARKET LEVEL WHICH IS BELOW THAT PREVAILING. IN EVALUATION OF LEASEHOLD INTERESTS, THE TYPICAL TYPES OF LEASES ENCOUNTERED ARE: (1) FLAT OR UNGRADED, (2) STEP UP (OR STEP DOWN) RENTS ARE GRADED UP (OR DOWN) OVER TERM OF LEASE IN VARYING INCREMENTS, (3) REVALUATION, (4) PERCENTAGE, USUALLY TIED WITH PERCENTAGE OF GROSS SALES, AND (5) INDEX-LEASE PERIODICALLY ADJUSTED IN ACCORDANCE WITH CHANGE IN SOME ESTABLISHED PRICE INDEX. EVALUATION OF LEASEHOLD INTERESTS IS SIMILAR TO OTHER APPRAISALS IN THAT AN ATTEMPT IS MADE TO MEASURE THE MARKET REACTION TO VALUE OF A PORTION OF THE PROPERTY INTERESTS AS WELL AS THE ENTIRE PROPERTY.

Media Info

  • Media Type: Print
  • Pagination: pp 41-46
  • Monograph Title: Legal studies
  • Serial:

Subject/Index Terms

Filing Info

  • Accession Number: 00200870
  • Record Type: Publication
  • Files: TRIS, TRB
  • Created Date: Jul 28 1994 12:00AM